DELPHI TECHNOLOGIES PLC, 10-K filed on 2/13/2020
Annual Report
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Document and Entity Information Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Feb. 07, 2020
Jun. 30, 2019
Document and Entity Information [Abstract]      
Title of 12(b) Security Ordinary Shares. $0.01 par value per share    
Entity Incorporation, State or Country Code Y9    
Document Annual Report true    
Entity Tax Identification Number 98-1367514    
Trading Symbol DLPH    
Security Exchange Name NYSE    
City Area Code 011-    
Local Phone Number 44-020-305-74300    
Entity Registrant Name DELPHI TECHNOLOGIES PLC    
Entity Central Index Key 0001707092    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Entity File Number 001-38110    
Entity Address, Address Line One One Angel Court    
Entity Address, City or Town London    
Entity Address, Postal Zip Code EC2R 7HJ    
Entity Address, Country GB    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   86,071,640  
Document Transition Report false    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Public Float     $ 1,738,378,780
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CONSOLIDATED STATEMENT OF OPERATIONS - USD ($)
shares in Thousands, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Net sales $ 4,361 $ 4,858 $ 4,849
Operating expenses:      
Cost of sales 3,728 3,961 3,881
Selling, general and administrative 398 414 408
Amortization of Intangible Assets, Statement of Operations 14 14 16
Restructuring 80 35 98
Total operating expenses 4,220 4,424 4,403
Operating income 141 434 446
Interest expense (68) (79) (15)
Other income (expense) 13 9 (11)
Income before income taxes and equity income 86 364 420
Income tax (expense) benefit (57) 9 (106)
Income before equity income 29 373 314
Equity income, net of tax 4 7 5
Net income 33 380 319
Net income attributable to noncontrolling interest 16 22 34
Net income attributable to Delphi Technologies $ 17 $ 358 $ 285
Net income per share attributable to Delphi Technologies:      
Basic (in dollars per share) $ 0.19 $ 4.04 $ 3.22
Diluted (in dollars per share) $ 0.19 $ 4.03 $ 3.21
Weighted average ordinary shares outstanding:      
Basic (in thousands) 87,290 88,680 88,610
Diluted (in thousands) 87,420 88,890 88,660
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income $ 33 $ 380 $ 319
Other comprehensive income (loss):      
Currency translation adjustments (10) (83) 72
Net change in unrecognized gain (loss) on derivative instruments, net of tax 22 (2) 0
Employee benefit plans adjustment, net of tax 24 41 6
Other comprehensive income (loss), net of tax 36 (44) 78
Comprehensive income 69 336 397
Comprehensive income attributable to noncontrolling interests 16 19 38
Comprehensive income attributable to Delphi Technologies $ 53 $ 317 $ 359
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 191 $ 359
Restricted cash 0 1
Accounts receivable, net 821 878
Inventories, net 447 521
Other current assets 189 172
Total current assets 1,648 1,931
Long-term assets:    
Property, net 1,509 1,445
Investments in affiliates 42 44
Intangible assets, net 53 69
Goodwill 7 7
Deferred income taxes 269 280
Other long-term assets 219 117
Total long-term assets 2,099 1,962
Total assets 3,747 3,893
Current liabilities:    
Short-term debt 40 43
Accounts payable 717 906
Accrued liabilities 466 428
Total current liabilities 1,223 1,377
Long-term liabilities:    
Long-term debt 1,455 1,488
Pension and other postretirement benefit obligations 404 467
Other long-term liabilities 210 123
Total long-term liabilities 2,069 2,078
Total liabilities 3,292 3,455
Commitments and contingencies
Shareholders’ equity:    
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized, none issued and outstanding 0 0
Ordinary shares, $0.01 par value per share, 1,200,000,000 shares authorized, 86,071,640 and 88,491,963 issued and outstanding as of December 31, 2019 and December 31, 2018, respectively 1 1
Additional paid-in-capital 409 407
Retained earnings 281 296
Accumulated other comprehensive loss (376) (412)
Total Delphi Technologies shareholders’ equity 315 292
Noncontrolling interest 140 146
Total shareholders’ equity 455 438
Total liabilities and shareholders’ equity $ 3,747 $ 3,893
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Preferred shares, par value (in dollars per share) $ 0.01 $ 0.01
Preferred shares, authorized 50,000,000 50,000,000
Preferred shares, issued 0 0
Preferred shares, outstanding 0 0
Ordinary shares, par value (in dollars per share) $ 0.01 $ 0.01
Ordinary shares, shares authorized 1,200,000,000 1,200,000,000
Ordinary shares, shares issued 86,071,640 88,491,963
Ordinary shares, shares outstanding 86,071,640 88,491,963
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CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net income $ 33 $ 380 $ 319
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 196 182 173
Amortization 11 14 16
Amortization of deferred debt issuance costs 4 4 0
Impairment of assets 35 1 12
Restructuring expense, net of cash paid 31 (32) 10
Deferred income taxes 9 (108) (7)
Pension and other postretirement benefit expenses 12 43 47
Income from equity method investments, net of dividends received (4) (7) (5)
Gain on sale of assets (5) (3) 0
Share-based compensation 17 9 17
Changes in operating assets and liabilities:      
Accounts receivable, net 57 162 (271)
Inventories 74 (24) (124)
Other assets 10 (49) (82)
Accounts payable (117) (97) 201
Accrued and other long-term liabilities (27) 27 148
Other, net 7 (36) (18)
Pension contributions (51) (47) (48)
Net cash provided by operating activities 292 419 388
Cash flows from investing activities:      
Capital expenditures (371) (265) (197)
Proceeds from sale of property 12 5 10
Cost of technology investments 0 (7) (1)
Proceeds from insurance settlement claims 0 1 1
Settlement of undesignated derivatives (2) (8) 0
Net cash used in investing activities (361) (274) (187)
Cash flows from financing activities:      
Net repayments under other short-term debt agreements (3) (2) 0
Repayments under long-term debt agreements (37) (19) 0
Proceeds from issuance of senior notes, net of discount and issuance costs 0 0 782
Proceeds from issuance of credit agreement, net of issuance costs 0 0 741
Dividend payments of consolidated affiliates to minority shareholders (11) (12) (10)
Distribution of cash dividends 0 (60) 0
Taxes withheld and paid on employees’ restricted share awards (2) (5) 0
Repurchase of ordinary shares (45) (10) 0
Cash distributions paid to Former Parent 0 0 (1,328)
Other net transfers to Former Parent 0 0 (160)
Net cash (used in) provided by financing activities (98) (108) 25
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash (2) (16) 12
(Decrease) increase in cash, cash equivalents and restricted cash (169) 21 238
Cash, cash equivalents and restricted cash at beginning of the year 360 339 101
Cash, cash equivalents and restricted cash at end of the year $ 191 $ 360 $ 339
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
$ in Millions
Total
Ordinary Shares
Additional Paid in Capital
Retained Earnings
Former Parent’s Net Investment
Accumulated Other Comprehensive Loss
Total Delphi Technologies Shareholders’ Equity
Noncontrolling Interest
Balance at beginning of year at Dec. 31, 2016 $ 1,182       $ 1,737 $ (711) $ 1,026 $ 156
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 319     $ 7 278   285 34
Other comprehensive income (loss) 78         74 74 4
Reclassification of Former Parent's net investment and issuance of ordinary shares in connection with separation   89,000,000            
Reclassification of Former Parent's net investment and issuance of ordinary shares in connection with separation   $ 1 $ 430   (431)      
Dividend payments of consolidated affiliates to minority shareholders (30)             (30)
Stock Repurchased and Retired During Period, Value $ 0              
Stock Repurchased and Retired During Period, Shares 0              
Share-based compensation $ 17   1   16   17  
Net other change in Former Parent's Net Investment (6)       (272) 266 (6)  
Net transfers to Former Parent (1,328)       (1,328)   (1,328)  
Balance at end of year at Dec. 31, 2017 232 $ 1 431 7 0 (371) 68 164
Shares outstanding, end of period at Dec. 31, 2017   89,000,000            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 380     358 0   358 22
Other comprehensive income (loss) (44)         (41) (41) (3)
Dividends, Cash (60)     (60)     (60)  
Dividend payments of consolidated affiliates to minority shareholders (37)             (37)
Stockholders Equity Separation Related Adjustment (27)   (27)       (27)  
Stock Repurchased and Retired During Period, Value $ (10)   (1) (9)     (10)  
Stock Repurchased and Retired During Period, Shares (293,695)              
Share-based compensation $ 9   9   0   9  
Taxes withheld on employees’ restricted share award vestings (5)   (5)       (5)  
Balance at end of year at Dec. 31, 2018 438 $ 1 407 296 $ 0 (412) 292 146
Shares outstanding, end of period at Dec. 31, 2018   89,000,000            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 33     17     17 16
Other comprehensive income (loss) 36         36 36  
Dividend payments of consolidated affiliates to minority shareholders (22)             (22)
Stock Repurchased and Retired During Period, Value $ (45)   (13) (32)     (45)  
Stock Repurchased and Retired During Period, Shares (2,622,776) (3,000,000)            
Share-based compensation $ 17   17       17  
Taxes withheld on employees’ restricted share award vestings (2)   (2)       (2)  
Balance at end of year at Dec. 31, 2019 $ 455 $ 1 $ 409 $ 281   $ (376) $ 315 $ 140
Shares outstanding, end of period at Dec. 31, 2019   86,000,000            
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GENERAL
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
GENERAL GENERAL
On December 4, 2017, Delphi Technologies PLC became an independent publicly-traded company, formed under the laws of Jersey, as a result of the separation of the Powertrain Systems segment, which included the aftermarket operations, from Delphi Automotive PLC (the “Former Parent”). The separation was completed in the form of a pro-rata distribution to the Former Parent shareholders of record on November 22, 2017 of 100% of the outstanding ordinary shares of Delphi Technologies PLC (the “Separation”). Following the Separation, Delphi Automotive PLC changed its name to Aptiv PLC (“Aptiv”). Delphi Technologies’ ordinary shares began trading on the New York Stock Exchange under the ticker symbol “DLPH” on December 5, 2017 (references hereinafter to “Delphi Technologies,” “we,” “us,” “our” or the “Company” refer to Delphi Technologies PLC and include the results of the Former Parent’s Powertrain Systems segment).
Nature of Operations
Delphi Technologies is a leader in the development, design and manufacture of integrated powertrain technologies that optimize engine performance, increase vehicle efficiency, reduce emissions, improve driving performance, and support increasing electrification of vehicles. The Company is a global supplier to original equipment manufacturers (“OEMs”) seeking to manufacture vehicles that meet and exceed increasingly stringent global regulatory requirements and satisfy consumer demands for an enhanced user experience. We provide advanced fuel injection systems, actuators, valvetrain products, sensors, electronic control modules and power electronics technologies. Additionally, the Company offers a full spectrum of aftermarket products serving a global customer base.
Our comprehensive portfolio of advanced technologies and solutions for all propulsion systems are sold to global OEMs of both light vehicles (passenger cars, trucks, vans and sport-utility vehicles) and commercial vehicles (light-duty, medium-duty and heavy-duty trucks, commercial vans, buses and off-highway vehicles). The Aftermarket segment also remanufactures and sells our products to leading aftermarket companies, including independent retailers and wholesale distributors. We supply a wide range of aftermarket products and services covering the fuel injection, electronics and engine management, maintenance, and test equipment and vehicle diagnostics categories. We also add aftermarket know-how in category management, logistics, training, marketing and other dedicated services to provide a full range of aftermarket solutions throughout a vehicles’ lifecycle.
Basis of Presentation
Prior to the Separation on December 4, 2017, the historical financial statements of Delphi Technologies were prepared on a stand-alone combined basis and were derived from the Former Parent’s consolidated financial statements and accounting records. These financial statements were prepared as if the Powertrain Systems segment, which historically included Aftermarket, of the Former Parent had been part of Delphi Technologies for all periods presented. Accordingly, for periods prior to December 4, 2017, our financial statements are presented on a combined basis and for the periods subsequent to December 4, 2017, are presented on a consolidated basis (all periods hereinafter are referred to as “consolidated financial statements”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
At the time of the Separation, we used available information to develop our best estimates for certain assets and liabilities related to the Separation. In certain instances, final determination of the Separation-related balances was made in subsequent periods, and any adjustments, if necessary, were recorded to shareholders’ equity when determined.
The Company’s historical financial statements for the period prior to December 4, 2017 reflect an allocation of expenses related to certain corporate functions of the Former Parent, including senior management, legal, human resources, finance and accounting, treasury, information technology services and support, cash management, payroll processing, pension and benefit administration and other shared services. These costs were allocated using methodologies that management believes were reasonable for the item being allocated. Allocation methodologies included direct usage when identifiable, as well as the Company’s relative share of revenues, headcount or functional spend as a percentage of the total. However, the allocations are not indicative of the actual expenses that would have been incurred had Delphi Technologies operated as a stand-alone publicly-traded company for the periods presented. Accordingly, the historical financial information presented for periods prior to December 4, 2017 may not be indicative of the results of operations or cash flows that would have been achieved if Delphi Technologies had been a stand-alone publicly-traded company during the periods shown or of the Company’s performance for periods subsequent to December 4, 2017. Related party allocations are further described in Note 3. Related Party Transactions.
Prior to the Separation, transfers of cash to and from the Former Parent were reflected as a component of the Former Parent’s net investment in the consolidated financial statements. Cash and cash equivalents held by the Former Parent were not attributable to Delphi Technologies for any of the prior periods presented. Only cash amounts specifically attributable to Delphi Technologies are reflected in the accompanying consolidated financial statements.
Prior to December 4, 2017, all intercompany transactions between the Company and the Former Parent were considered to be effectively settled in the historical financial statements at the time the transactions were recorded. As a result, the total net effect of the settlement of these intercompany transactions was reflected in the consolidated statements of cash flows as a financing activity.
In connection with the Separation, the Former Parent’s net investment was reclassified within shareholders’ equity and allocated between ordinary shares and additional paid-in capital based on the number of our ordinary shares outstanding at the distribution date.
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SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The consolidated financial statements as of and for the year ended December 31, 2019 include the accounts of Delphi Technologies’ subsidiaries in which the Company holds a controlling financial or management interest and variable interest entities of which Delphi Technologies has determined that it is the primary beneficiary. All significant intercompany transactions and balances between consolidated Delphi Technologies businesses have been eliminated. For periods prior to December 4, 2017, transactions between the Company and the Former Parent have been included in the financial statements within Former Parent net investment. Prior to December 4, 2017, expenses related to corporate allocations from the Former Parent to the Company were considered to be effectively settled for cash in the financial statements at the time the transaction was recorded. Prior to the Separation, transactions between the Company and the Former Parent’s other subsidiaries were classified as related party transactions within the consolidated financial statements.
Delphi Technologies’ share of the earnings or losses of Delphi-TVS Diesel Systems Ltd (of which Delphi Technologies owns approximately 50%), a non-controlled affiliate located in India over which the Company exercises significant influence, is included in the consolidated operating results of Delphi Technologies using the equity method of accounting.
During the year ended December 31, 2015, Delphi Technologies made a $20 million investment in Tula Technology, Inc. (“Tula”), an engine control software company, over which the Company does not exert significant influence. During the year ended December 31, 2017, Delphi Technologies made an additional $1 million investment in Tula.
During the year ended December 31, 2018, Delphi Technologies made a $7 million investment in PolyCharge America, Inc. (“PolyCharge”), a start-up established to commercialize a new capacitor technology, over which the Company does not exert significant influence.
Tula and PolyCharge are privately-held companies that do not have readily determinable fair values and therefore are measured at cost less impairments, adjusted for observable price changes in orderly transactions for the identical or similar investment of the same issuer. There were no impairments or upward adjustments recorded during the years ended December 31, 2019 or 2018. These investments are classified within other long-term assets in the consolidated balance sheets.
The Company monitors its equity investments, including those measured at fair value and those that do not have readily determinable fair values, for indicators of impairments or upward adjustments, on an ongoing basis. If the Company determines that such an indicator is present, an adjustment is recorded, which is measured as the difference between carrying value and estimated fair value. Estimated fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.
Use of estimates—Preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect amounts reported therein. Generally, matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of intangible and fixed assets, deferred tax asset valuation allowances, income taxes, pension benefit plan assumptions, accruals related to litigation, warranty costs, restructuring, environmental remediation costs, worker’s compensation accruals and healthcare accruals. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.
Revenue recognition—Delphi Technologies recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our production parts or aftermarket parts. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Sales incentives and allowances (including returns) are recognized as a reduction to revenue at the time of the related sale. The Company estimates the allowances based on an analysis of historical experience. Taxes assessed by a governmental authority collected by the Company concurrent with a specific revenue-producing transaction are excluded from net sales. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in cost of sales.
Aftermarket provides certain customers with a right of return. The Company recognizes an estimated return asset (and adjusts for cost of sales) for the right to recover the products returned by the customer. ASC 606 requires that return assets be presented separately from inventory. As of December 31, 2019, the Company had return assets of $7 million included in other current assets.
Refer to Note 15. Revenue and Note 5. Assets for additional information.
Net income per share—Basic net income per share is computed by dividing net income attributable to Delphi Technologies by the weighted–average number of ordinary shares outstanding during the period. Diluted net income per share reflects the weighted average dilutive impact of all potentially dilutive securities from the date of issuance and is computed using the treasury stock method by dividing net income attributable to Delphi Technologies by the diluted weighted-average number of ordinary shares outstanding. For periods prior to the Separation, the denominator for basic and diluted net income per share was calculated using the 88.61 million Delphi Technologies ordinary shares outstanding immediately following the Separation. The same number of shares was used to calculate basic and diluted earnings per share in those periods since no Delphi Technologies equity awards were outstanding prior to the Separation. Refer to Note 17. Shareholders’ Equity and Net Income Per Share for additional information including the calculation of basic and diluted net income per share.
Rebates—The Company accrues for rebates pursuant to specific arrangements primarily with certain aftermarket customers. Rebates generally provide for price reductions based upon purchase volumes and are recorded as a reduction of sales as earned by such customers.
Research and development—Costs are incurred in connection with research and development programs that are expected to contribute to future earnings. Such costs are charged against income as incurred. Total research and development expenses, including engineering, net of third party reimbursements, were $408 million, $448 million and $420 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Cash and cash equivalents—Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less.
Restricted cash—Restricted cash includes balances on deposit at financial institutions that have issued letters of credit in favor of Delphi Technologies.
Accounts receivable—Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company generally does not require collateral for its trade receivables.
Sales of receivables are accounted for in accordance with the FASB ASC Topic 860, Transfers and Servicing (“ASC 860”). Agreements which result in true sales of the transferred receivables, as defined in ASC 860, which occur when receivables are transferred to a third party without recourse to the Company, are excluded from amounts reported in the consolidated balance sheets. Cash proceeds received from such sales are included in operating cash flows. Agreements that allow the Company to maintain effective control over the transferred receivables and which do not qualify as a sale, as defined in ASC 860, are accounted for as secured borrowings and recorded in the consolidated balance sheets within accounts receivable, net and short-term debt. The expenses associated with receivables factoring are recorded in the consolidated statements of operations within interest expense.
The Company exchanges certain amounts of accounts receivable, primarily in the Asia Pacific region, for bank notes with original maturities greater than three months. The collection of such bank notes are included in operating cash flows based on the substance of the underlying transactions, which are operating in nature. Bank notes held by the Company with original maturities of three months or less are classified as cash and cash equivalents within the consolidated balance sheet, and those with original maturities of greater than three months are classified as notes receivable within other current assets. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities, or sell them to third party financial institutions in exchange for cash.
The allowance for doubtful accounts is established based upon analysis of trade receivables for known collectability issues, the aging of the trade receivables at the end of each period and, generally, all accounts receivable balances greater than 90 days past due are fully reserved. The table below summarizes the activity in the allowance for doubtful accounts for the years ended December 31, 2019, 2018 and 2017:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
(in millions)
Balance at beginning of year
$
18

 
$
16

 
$
9

Provision for doubtful accounts, net of recoveries
11

 
5

 
8

Write-offs
(5
)
 
(2
)
 
(1
)
Foreign currency translation and other

 
(1
)
 

Balance at end of year
$
24

 
$
18

 
$
16


Inventories—Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value, including direct material costs and direct and indirect manufacturing costs. Refer to Note 4. Inventories for additional information. Obsolete inventory is identified based on analysis of inventory for known obsolescence issues, and, generally, the market value of inventory on hand in excess of one year’s supply is fully-reserved.
From time to time, payments may be received from suppliers. These payments from suppliers are recognized as a reduction of the cost of the material acquired during the period to which the payments relate. In some instances, supplier rebates are received in conjunction with or concurrent with the negotiation of future purchase agreements and these amounts are amortized over the prospective agreement period.
Property—Major improvements that materially extend the useful life of property are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is determined based on a straight-line method over the estimated useful lives of groups of property. Leasehold improvements under capital leases are depreciated over the period of the lease or the life of the property, whichever is shorter. Refer to Note 6. Property, Net for additional information.
Leases—The Company accounts for leases in accordance with FASB ASC Topic 842, Leases (“ASC 842”), which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, with the exception of short-term leases. The lease liability and right-of-use asset are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. For leases that meet the definition of a short-term lease, the Company has elected to apply the short-term lease exemption, and accordingly, they are not recorded on the balance sheet. The Company has elected the practical expedients in ASC 842 related to not separating lease and nonlease components of contracts, both when the Company is a lessee and lessor.
The Company uses an estimated incremental borrowing rate, which is derived from information available at lease commencement, in determining the present value of lease payments. When calculating the incremental borrowing rates, the Company gives consideration to the applicable margin based on our corporate credit ratings, as defined by the Credit Agreement, as well as publicly available data by country for instruments with similar characteristics. Refer to Note 7. Leases for additional information.
Pre-production costs related to long-term supply agreements—The Company incurs pre-production engineering, development and tooling costs related to products produced for its customers under long-term supply agreements. Engineering, testing and other costs incurred in the design and development of production parts are expensed as incurred, unless the costs are reimbursable, as specified in a customer contract. As of December 31, 2019 and 2018, $20 million and $17 million of such contractually reimbursable costs were capitalized, respectively. These amounts are recorded within other current and other long-term assets in the consolidated balance sheets, as further detailed in Note 5. Assets.
Special tools represent Delphi Technologies-owned tools, dies, jigs and other items used in the manufacture of customer components that will be sold under long-term supply arrangements, the costs of which are capitalized within property, plant and equipment if the Company has title to the assets. Special tools also include capitalized unreimbursed pre-production tooling costs related to customer-owned tools for which the customer has provided Delphi Technologies a non-cancellable right to use the tool. Delphi Technologies-owned special tools balances are depreciated over the expected life of the special tool or the life of the related vehicle program, whichever is shorter. The unreimbursed costs incurred related to customer-owned special tools that are not subject to reimbursement are capitalized and depreciated over the expected life of the special tool or the life of the related vehicle program, whichever is shorter. At December 31, 2019 and 2018, the special tools balance, net of accumulated depreciation, was $129 million and $119 million, respectively, included within property, net in the consolidated balance sheets. As of December 31, 2019 and 2018, the Delphi Technologies-owned special tools balances were $120 million and $109 million, respectively, and the customer-owned special tools balances were $9 million and $10 million, respectively.
Valuation of long-lived assets—The carrying value of long-lived assets held for use, including definite-lived intangible assets, is periodically evaluated when events or circumstances warrant such a review. The carrying value of a long-lived asset held for use is considered impaired when the anticipated separately identifiable undiscounted cash flows from the asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. Impairment losses on long-lived assets held for sale are recognized if the carrying value of the asset is in excess of the asset’s estimated fair value, reduced for the cost to dispose of the asset. Fair value of long-lived assets is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved (an income approach), and in certain situations the Company’s review of appraisals (a market approach). Refer to Note 6. Property, Net for additional information.
Fair value measurements—The fair values of cash and cash equivalents, accounts and notes receivable, accounts payable, and debt approximates book value. Refer to Note 20. Fair Value of Financial Instruments for the fair values of other financial instruments and obligations.
Intangible assets—The Company has definite-lived intangible assets related to patents and developed technology, customer relationships and trade names. The Company amortizes definite-lived intangible assets over their estimated useful lives. The Company also has intangible assets related to acquired trade names that are classified as indefinite-lived when there are no foreseeable limits on the periods of time over which they are expected to contribute cash flows. These indefinite-lived trade name assets are tested for impairment annually, or more frequently when indicators of potential impairment exist. Costs to renew or extend the term of acquired intangible assets are recognized as expense as incurred. Refer to Note 8. Intangible Assets and Goodwill for additional information.
Goodwill—Goodwill is the excess of the purchase price over the estimated fair value of identifiable net assets acquired in business combinations. The Company tests goodwill for impairment annually in the fourth quarter, or more frequently when indications of potential impairment exist. The Company monitors the existence of potential impairment indicators throughout the fiscal year. The Company tests for goodwill impairment at the reporting unit level. Our reporting units are operating segments and goodwill relates solely to the Aftermarket operating segment.
The impairment test involves first qualitatively assessing goodwill for impairment. If the qualitative assessment is not met the Company then performs a quantitative assessment by first comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the estimated fair value exceeds carrying value, then we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is required to measure possible goodwill impairment loss. The second step includes hypothetically valuing the tangible and intangible assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying value of that goodwill. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Refer to Note 8. Intangible Assets and Goodwill for additional information.
In the fourth quarter of 2019 and 2018, the Company completed a qualitative goodwill impairment assessment, and after evaluating the results, events and circumstances of the Company, the Company concluded that sufficient evidence existed to assert qualitatively that it was more likely than not that the estimated fair value of each reporting unit remained in excess of its carrying values. Therefore, a two-step impairment assessment was not necessary. No goodwill impairments were recorded in 2019, 2018 or 2017. Refer to Note 8. Intangible Assets and Goodwill for additional information.
Warranty and product recalls—Expected warranty costs for products sold are recognized at the time of sale of the product based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of our warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Refer to Note 10. Warranty Obligations for additional information.
Income taxes—As described in Note 16. Income Taxes, prior to the Separation the Company’s domestic and foreign operating results were included in the income tax returns of the Former Parent, and the Company accounted for income taxes under the separate return method. Under this approach, the Company determined its deferred tax assets and liabilities and related tax expense as if it were filing separate tax returns. 
Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax
assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. Refer to Note 16. Income Taxes for additional information.
Foreign currency translation—Assets and liabilities of non-U.S. subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end-of-period currency exchange rates. The consolidated statements of operations of non-U.S. subsidiaries are translated to U.S. dollars at average-period currency exchange rates. The effect of translation for non-U.S. subsidiaries is generally reported in other comprehensive income (“OCI”). The effect of remeasurement of assets and liabilities of non-U.S. subsidiaries that use the U.S. dollar as their functional currency is primarily included in cost of sales. Also included in cost of sales are gains and losses arising from transactions denominated in a currency other than the functional currency of a particular entity. Net foreign currency transaction losses and (gains) of $10 million, $(1) million and $(9) million were included as a component of cost of goods sold and other income (expense) in the consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017, respectively.
Restructuring—Delphi Technologies continually evaluates alternatives to align the business with the changing needs of its customers and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in employees receiving voluntary or involuntary employee termination benefits, which are mainly pursuant to union or other contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and when the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable including, at times, consultations with employee works councils or other employee representatives, depending on the existence of a substantive plan for severance or termination. Contract termination costs are recorded when contracts are terminated or when Delphi Technologies no longer derives economic benefit from a contract or ceases to use a leased facility. All other exit costs are expensed as incurred. Refer to Note 11. Restructuring for additional information.
Environmental liabilities—Environmental remediation liabilities are recognized when a loss is probable and can be reasonably estimated. Such liabilities generally are not subject to insurance coverage. The cost of each environmental remediation is estimated by engineering, financial, and legal specialists based on current law and considers the estimated cost of investigation and remediation required and the likelihood that, where applicable, other responsible parties will be able to fulfill their commitments. The process of estimating environmental remediation liabilities is complex and dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, the uncertainty as to what remediation and technology will be required, and the outcome of discussions with regulatory agencies and, if applicable, other responsible parties at multi-party sites. In future periods, new laws or regulations, advances in remediation technologies and additional information about the ultimate remediation methodology to be used could significantly change estimates by Delphi Technologies. Refer to Note 14. Commitments and Contingencies for additional information.
Customer concentrations—For the year ended December 31, 2019, sales to Volkswagen AG accounted for 11% of our net sales, which were primarily related to the Fuel Injection Systems segment. There were no customers with sales greater than 10% of our net sales for the years ended December 31, 2018 and 2017.
Derivative financial instruments—All derivative instruments are required to be reported on the balance sheet at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria.
Exposure to fluctuations in currency exchange rates and interest rates are managed by entering into a variety of forward contracts and swaps with various counterparties. Such financial exposures are managed in accordance with the policies and procedures of Delphi Technologies. The Company does not enter into derivative transactions for speculative or trading purposes. As part of the hedging program approval process, the Company identifies the specific financial risk which the derivative transaction will minimize, the appropriate hedging instrument to be used to reduce the risk and the correlation between the financial risk and the hedging instrument. Purchase orders, sales contracts, letters of intent, capital planning forecasts and historical data are used as the basis for determining the anticipated values of the transactions to be hedged. The Company does not enter into derivative transactions that do not have a high correlation with the underlying financial risk. Hedge positions, as well as the correlation between the transaction risks and the hedging instruments, are reviewed on an ongoing basis.
Foreign exchange forward contracts are accounted for as hedges of firm or forecasted foreign currency commitments to the extent they are designated and assessed as highly effective. All foreign exchange contracts are marked to market on a current basis. Refer to Note 19. Derivatives and Hedging Activities and Note 20. Fair Value of Financial Instruments for additional information.
Asset retirement obligations—Asset retirement obligations are recognized in accordance with FASB ASC 410, Asset Retirement and Environmental Obligations. Conditional retirement obligations have been identified primarily related to asbestos abatement at certain sites, removal of storage tanks and other disposal costs. Asset retirement obligations were $2 million and $2 million, at December 31, 2019 and 2018, respectively.
Workers’ compensation benefits—Workers’ compensation benefit accruals are actuarially determined and are subject to the existing workers’ compensation laws that vary by location. Accruals for workers’ compensation benefits represent the discounted future cash expenditures expected during the period between the incidents necessitating the employees to be idled and the time when such employees return to work, are eligible for retirement or otherwise terminate their employment.
Share-based compensation—The Delphi Technologies PLC Long-Term Incentive Plan (the “PLC LTIP”) allows for the grant of share-based awards for long-term compensation to the employees, directors, consultants and advisors of the Company. The Company had no share-based compensation plans prior to the Separation; however certain of our employees and non-employee directors participated in the Former Parent’s share-based compensation arrangement, the Delphi Automotive PLC Long-Term Incentive Plan, as amended and restated effective April 23, 2015 (the “Former Parent Plan”). Grants of restricted stock units (“RSUs”) to executives and non-employee directors were made subsequent to the Separation under the PLC LTIP in 2017, 2018 and 2019. Grants of RSUs were made under the Former Parent Plan in each year from 2012 to 2017. Outstanding awards at the time of the Separation were converted to awards under the PLC LTIP.
Share-based compensation expense within the consolidated financial statements for periods prior to the Separation was allocated to Delphi Technologies based on the awards and terms previously granted to Delphi Technologies employees while part of the Former Parent, and includes the cost of Delphi Technologies employees who participated in the Former Parent’s Plan, as well as an allocated portion of the cost of the Former Parent’s senior management awards.
The RSU awards to executives include a time-based vesting portion and a performance-based vesting portion. The performance-based vesting portion includes performance and market conditions in addition to service conditions. The grant date fair value of the RSUs is determined based on the closing price of the underlying ordinary shares on the date of the grant of the award, including an estimate for forfeitures, and a contemporaneous valuation performed by an independent valuation specialist with respect to awards with market conditions. The Company accounts for compensation expense based upon the grant date fair value of the awards applied to the best estimate of ultimate performance against the respective targets on a straight-line basis over the requisite vesting period of the awards. The performance conditions require management to make assumptions regarding the likelihood of achieving certain performance goals. Changes in these performance assumptions, as well as differences in actual results from management’s estimates, could result in estimated or actual values different from previously estimated fair values.
Modifications to the terms of share-based awards are treated as an exchange of the original award for a new award resulting in total compensation cost equal to the grant-date fair value of the original award plus any incremental value of the modification to the award. The calculation of the incremental value is based on the excess of the fair value of the new (modified) award based on current circumstances over the fair value of the original award measured immediately before its terms are modified. To the extent there is incremental compensation cost relating to the newly modified award, it is recognized ratably over the requisite service period. Refer to Note 22. Share-Based Compensation for additional information.
Pension and Other Post-Retirement Benefits (OPEB)—Certain of the Company’s non-U.S. subsidiaries sponsor defined-benefit plans, which generally provide benefits based on negotiated amounts for each year of service. Certain Delphi Technologies employees, primarily in the United Kingdom (“U.K.”), France, Mexico and Turkey, participate in these plans (collectively, the “Direct Plans”). The Direct Plans, which relate solely to the Company, are included within the consolidated financial statements. In addition to the Direct Plans, prior to the Separation certain of the Company’s employees in Germany and the U.S. participated in defined benefit pension plans (collectively, the “Shared Plans”) sponsored by the Former Parent that included Delphi Technologies employees as well as employees of other subsidiaries of the Former Parent. The related pension and other postemployment expenses of the Shared Plans were charged to Delphi Technologies based primarily on the service cost of active participants. Following the Separation, Delphi Technologies’ portion of the defined-benefit pension plans were separated from the Former Parent’s defined benefit pension plans. As a result, the funded status for each plan is reflected in the Company’s consolidated balance sheet as of December 31, 2019 and 2018. Refer to Note 13. Pension Benefits for additional information.
Recently adopted accounting pronouncements—Delphi Technologies adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), in the first quarter of 2019 using the optional modified retrospective transition method and did not recast the comparative periods. This ASU requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, with the exception of short-term leases. Delphi Technologies elected the package of practical expedients, related to existing leases at the time of adoption, that allowed the Company to carry forward the accounting assessments for: i) whether contracts are or contain leases, ii) the lease classification and iii) the initial direct costs. Delphi Technologies also
elected the practical expedient related to existing land easements, that allowed the Company to carry forward the accounting treatment for land easements in existing agreements.
The adoption of this guidance resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of approximately $107 million and $115 million, respectively, on the Company’s consolidated balance sheet as of December 31, 2019. The adoption did not have a material impact on its consolidated statements of operations or cash flows. Refer to Note 7. Leases for additional information.
Delphi Technologies adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting in the first quarter of 2019. This guidance expands the scope of ASC Topic 718, which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recently issued accounting pronouncements not yet adopted—In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This guidance amends ASC 820 to add, remove and clarify certain disclosure requirements related to fair value measures. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted. The adoption of this guidance will not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. This guidance amends ASC 715 to add, remove and clarify certain disclosure requirements related to defined benefit pension and other postretirement plans. The new guidance is effective for fiscal years ending after December 31, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
v3.19.3.a.u2
RELATED PARTY TRANSACTIONS
12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS
Prior to the Separation, our transactions with the Former Parent were considered related party transactions. In connection with the Separation, we entered into a number of agreements with the Former Parent to govern the Separation and provide a framework for the relationship between the parties going forward, including a Transition Services Agreement, Contract Manufacturing Services Agreements, a Tax Matters Agreement and an Employee Matters Agreement.

In connection with the Separation, the Company paid a dividend of approximately $1,148 million to the Former Parent in 2017. Also in connection with the Separation, the Company paid $180 million in 2017 to the Former Parent pursuant to the Tax Matters Agreement with respect to taxes incurred in connection with transactions comprising the Separation.
Related Party Sales and Purchases in the Ordinary Course of Business
Prior to the Separation, in the ordinary course of business, the Company entered into transactions with the Former Parent and certain of its subsidiaries for the sale or purchase of goods, as well as other arrangements, such as providing engineering services for other subsidiaries of the Former Parent. Subsequent to the Separation, transactions with the Former Parent and its affiliates represent third-party transactions.
Prior to the Separation, net sales of products from Delphi Technologies to affiliates of the Former Parent totaled $1 million for the year ended December 31, 2017.
Prior to the Separation, total purchases from affiliates of the Former Parent totaled $29 million for the year ended December 31, 2017.
There were no net amounts due to affiliates of the Former Parent from related party transactions as of December 31, 2019 and 2018.
Allocation of Expenses Prior to the Separation
Prior to the Separation, certain services and functions including, but not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology services and support, cash management, payroll processing, pension and benefit administration and other shared services were provided by the Former Parent. These costs were allocated using methodologies that management believes were reasonable for the item being allocated. Allocation methodologies included direct usage when identifiable, as well as the Company’s relative share of revenues, headcount or functional spend as a percentage of the total. However, the expenses reflected are not indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a stand-alone publicly-traded company. In addition, the expenses reflected in the financial statements may not be indicative of expenses the Company will incur in the future.
The total costs for services and functions allocated to the Company from the Former Parent for periods prior to the Separation were as follows:
 
Year Ended December 31,
 
2017
 
(in millions)
Cost of sales
$
27

Selling, general and administrative
116

Total allocated cost from Former Parent
$
143


Additionally, prior to the Separation, the Company participated in a global cash pooling arrangement operated by the Former Parent, under which arrangement the working capital needs of the Company were managed. The majority of the Company’s cash during these periods was transferred to the Former Parent, and the Former Parent funded the Company’s operating and investing activities as necessary. The cumulative net transfers related to these transactions are recorded in Former Parent net investment in the consolidated financial statements.
v3.19.3.a.u2
INVENTORIES
12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
INVENTORIES INVENTORIES, NET
A summary of inventories is shown below:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Productive material
$
210

 
$
250

Work-in-process
40

 
36

Finished goods
197

 
235

Total
$
447

 
$
521


v3.19.3.a.u2
ASSETS
12 Months Ended
Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
ASSETS ASSETS
Other current assets consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Value added tax receivable
$
107

 
$
98

Prepaid insurance and other expenses
21

 
14

Reimbursable engineering costs
19

 
17

Income and other taxes receivable
13

 
16

Notes receivable
12

 
15

Derivative financial instruments (Note 19)
8

 
4

Return assets (Note 2)
7

 
7

Other
2

 
1

Total
$
189

 
$
172


Other long-term assets consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Operating lease assets (Note 7)
$
107

 
$

Income and other taxes receivable
28

 
53

Investment in Tula (Note 2)
21

 
21

Derivative financial instruments (Note 19)
13

 

Value added tax receivable
7

 

Investment in PolyCharge (Note 2)
6

 
7

Debt issuance costs
2

 
3

Reimbursable engineering costs
1

 

Other
34

 
33

Total
$
219

 
$
117


v3.19.3.a.u2
PROPERTY, NET
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
PROPERTY, NET PROPERTY, NET
Property, net is stated at cost less accumulated depreciation and amortization, and consisted of:
 
Estimated Useful
Lives
 
December 31,
 
2019
 
2018
 
(Years)
 
(in millions)
Land
 
$
70

 
$
70

Land and leasehold improvements
3-20
 
27

 
26

Buildings
40
 
333

 
300

Machinery, equipment and tooling
3-20
 
2,199

 
1,948

Information technology equipment, furniture and office equipment
3-10
 
133

 
81

Construction in progress
 
134

 
205

Total
 
 
2,896

 
2,630

Less: accumulated depreciation
 
 
(1,387
)
 
(1,185
)
Total property, net
 
 
$
1,509

 
$
1,445


For the year ended December 31, 2019, 2018 and 2017, Delphi Technologies recorded asset impairment charges of $23 million, $1 million and $12 million in cost of sales related to declines in the fair values of certain fixed assets, respectively. Additionally, during the year ended December 31, 2019, the Company recorded asset impairment charges of $5 million in selling, general and administrative expense for the decline in fair value of certain capitalized information technology assets.
v3.19.3.a.u2
LEASES (Notes)
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases of Lessee Disclosure [Text Block] LEASES
On January 1, 2019, Delphi Technologies adopted ASC Topic 842, Leases, which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for leases, with the exception of short-term leases. The Company leases real estate (including manufacturing sites and technical centers), office equipment, automobiles, forklifts and certain other equipment under finance and operating leases. As of December 31, 2019, the remaining lease terms range from 1 year to 9 years. Many of the Company’s leases include rent escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease payments and lease term, as appropriate. During the year ended December 31, 2019, the Company obtained $13 million of lease assets in exchange for new operating lease liabilities.
The Company is a lessor for certain owned real estate. Rental income for these leases is included within other income, net and was not material for the year end December 31, 2019.
The table below presents supplemental balance sheet information related to leases as of December 31, 2019:
 
 
December 31, 2019
 
 
 
 
 
(in millions)
Assets
Balance Sheet Location
 
Operating lease assets
Other long-term assets (Note 5)
$
107

Finance lease assets
Property, net
13

 
Total lease assets
$
120

 
 
 
Liabilities
 
 
Current
 
 
Operating leases
Accrued liabilities (Note 9)
$
22

Finance leases
Short-term debt (Note 12)
2

Long-term


Operating leases
Other long-term liabilities (Note 9)
93

Finance leases
Long-term debt (Note 12)
12

 
Total lease liabilities
$
129


The table below presents the components of lease costs as of December 31, 2019:
 
For the Year Ended December 31, 2019:
 
 
 
(in millions)
Finance lease cost - amortization of lease assets (1)
$
2

Operating lease cost (2)
35

Short-term lease cost
2

Variable lease cost
4

Total lease cost
$
43

(1)
Includes interest on finance lease liabilities, which was not material.
(2)
Includes right-of-use asset impairment charge of $4 million related to a real estate operating lease asset.
The table below presents the weighted-average remaining lease term and discount rate as of December 31, 2019:
Weighted-average remaining lease term (in years):
 
Operating leases
6.38

Finance leases
8.12

Weighted-average discount rate:
 
Operating leases
6.03
%
Finance leases
4.11
%

The table below presents supplemental cash flow information related to leases during the year ended December 31, 2019:
 
For the Year Ended December 31, 2019:
 
 
 
(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases (1)
$
28

(1)
Operating and financing cash flows for finance leases were not material for the year ended December 31, 2019.

The table below reconciles the undiscounted future minimum lease payments to the lease liabilities recorded on the balance sheet as of December 31, 2019:
 
Operating Leases
 
Finance Leases
 
Total
 
 
 
 
 
 
 
(in millions)
2020
$
28

 
$
3

 
$
31

2021
25

 
2

 
27

2022
21

 
2

 
23

2023
14

 
2

 
16

2024
13

 
1

 
14

Thereafter
38

 
7

 
45

Total future minimum lease payments
139

 
17

 
156

Less: amount of lease payments representing interest
(24
)
 
(3
)
 
(27
)
Total lease liabilities
$
115

 
$
14

 
$
129


v3.19.3.a.u2
INTANGIBLE ASSETS AND GOODWILL
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE ASSETS AND GOODWILL INTANGIBLE ASSETS AND GOODWILL
The changes in the carrying amount of intangible assets and goodwill were as follows:
 
 
 
As of December 31, 2019
 
As of December 31, 2018
 
Estimated Useful
Lives
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(Years)
 
(in millions)
 
(in millions)
Amortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Patents and developed technology
6-12
 
$
134

 
$
118

 
$
16

 
$
134

 
$
107

 
$
27

Customer relationships
3-10
 
114

 
101

 
13

 
110

 
94

 
16

Trade names
5-20
 
46

 
24

 
22

 
46

 
22

 
24

Total
 
 
294

 
243

 
51

 
290

 
223

 
67

Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
2

 

 
2

 
2

 

 
2

Goodwill
 
7

 

 
7

 
7

 

 
7

Total
 
 
$
303

 
$
243

 
$
60

 
$
299

 
$
223

 
$
76


Estimated amortization expense for the years ending December 31, 2019 through 2023 is presented below:
 
Year Ending December 31,
 
2020
 
2021
 
2022
 
2023
 
2024
 
(in millions)
Estimated amortization expense
$
17

 
$
12

 
$
2

 
$
2

 
$
2


A roll-forward of the gross carrying amounts of intangible assets for the years ended December 31, 2019 and 2018 is presented below.
 
2019
 
2018
 
(in millions)
Balance at January 1
$
299

 
$
287

Acquisitions
4

 
14

Foreign currency translation

 
(2
)
Balance at December 31
$
303

 
$
299


A roll-forward of the accumulated amortization for the years ended December 31, 2019 and 2018 is presented below:
 
2019
 
2018
 
(in millions)
Balance at January 1
$
223

 
$
205

Amortization
18

 
20

Foreign currency translation
2

 
(2
)
Balance at December 31
$
243

 
$
223



During the year ended December 31, 2019, the Company recorded impairment of $3 million related to intangible assets which is included in amortization expense. No intangible asset impairments were recorded in 2018 or 2017.
v3.19.3.a.u2
LIABILITIES
12 Months Ended
Dec. 31, 2019
Other Liabilities Disclosure [Abstract]  
LIABILITIES LIABILITIES
Accrued liabilities consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Restructuring (Note 11)
$
73

 
$
46

Income and other taxes payable
71

 
63

Warranty obligations (Note 10)
63

 
68

Payroll-related obligations
48

 
45

Deferred reimbursable engineering
45

 
31

Accrued rebates
26

 
29

Operating lease liabilities (Note 7)
22

 

Freight
13

 
20

Outside services
11

 
13

Accrued interest
10

 
12

Accrued customer returns
7

 
8

Customer deposits
6

 
5

Employee benefits
5

 
16

Dividends to minority shareholders
5

 

Other
61

 
72

Total
$
466

 
$
428


Other long-term liabilities consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Operating lease liabilities (Note 7)
$
93

 
$

Accrued income taxes
45

 
46

Warranty obligations (Note 10)
23

 
28

Restructuring (Note 11)
23

 
19

Deferred income taxes (Note 16)
15

 
14

Derivative financial instruments

 
6

Environmental (Note 14)
1

 
2

Other
10

 
8

Total
$
210

 
$
123


v3.19.3.a.u2
WARRANTY OBLIGATIONS
12 Months Ended
Dec. 31, 2019
Guarantees and Product Warranties [Abstract]  
WARRANTY OBLIGATIONS WARRANTY OBLIGATIONS
Expected warranty costs for products sold are recognized principally at the time of sale of the product based on an estimate of the amount that will eventually be required to settle such obligations. These accruals are based on factors such as past experience, production changes, industry developments and various other considerations. The estimated costs related to product recalls based on a formal campaign soliciting return of that product are accrued at the time an obligation becomes probable and can be reasonably estimated. These estimates and the related warranty reserves are adjusted from time to time based on facts and circumstances that impact the status of existing claims. Delphi Technologies has recognized its best estimate for its total aggregate warranty reserves, including product recall costs, across all of its operating segments as of December 31, 2019. The Company estimates the reasonably possible amount to ultimately resolve all matters in excess of the recorded reserves as of December 31, 2019 to be zero to $10 million.
The table below summarizes the activity in the product warranty liability for the years ended December 31, 2019 and 2018:
 
Year Ended December 31,
 
2019
 
2018
 
(in millions)
Accrual balance at beginning of year
$
96

 
$
97

Provision for estimated warranties incurred during the year
43

 
40

Changes in estimate for pre-existing warranties
3

 
8

Settlements made during the year (in cash or in kind)
(56
)
 
(44
)
Foreign currency translation and other

 
(5
)
Accrual balance at end of year
$
86

 
$
96


v3.19.3.a.u2
RESTRUCTURING
12 Months Ended
Dec. 31, 2019
Restructuring and Related Activities [Abstract]  
RESTRUCTURING RESTRUCTURING
The Company’s restructuring activities are undertaken as necessary to implement management’s strategy, streamline operations, take advantage of available capacity and resources, and ultimately achieve net cost reductions. These activities generally relate to the realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, as it relates to executing Delphi Technologies’ strategy, either in the normal course of business or pursuant to significant restructuring programs.
On October 31, 2019, the Company announced a restructuring plan to reshape and realign its global technical center footprint and reduce salaried and contract staff. Certain of these actions are subject to consultation with employee works councils and other employee representatives and are expected to be substantially completed by the end of 2021. The Company recorded pre-tax restructuring charges of $56 million during 2019 related to this restructuring plan and expects to record additional pre-tax restructuring charges of up to approximately $150 million, primarily in Fuel Injection Systems and to a lesser extent Powertrain Products. Nearly all of the restructuring charges will be cash expenditures. The amount and timing of the remaining charges will be based on a variety of factors, including consultations with employee works councils and other employee representatives.
In addition to the plan described above, other restructuring charges for the year ended December 31, 2019 of $24 million were primarily for restructuring programs undertaken by the Company related to workforce reductions as well as plant closures. These programs are primarily focused on the continued rotation of our manufacturing footprint to best-cost locations in Europe and on reducing global overhead costs.
During the year ended December 31, 2018, the Company recorded employee-related and other restructuring charges totaling approximately $35 million. These charges included $22 million that was recognized for programs focused on continued rotation of our manufacturing footprint to best-cost locations in Europe and $3 million that was recognized for programs implemented to reduce global overhead costs.
During the year ended December 31, 2017, the Company recorded employee-related and other restructuring charges related to various programs totaling approximately $98 million. These charges included $55 million of separation costs for approximately 500 employees due to the initiation of the closure of a Western European manufacturing site within the Powertrain Systems segment and approximately $30 million related to other programs pursuant to the Company’s on-going European footprint rotation strategy. Charges for the program have been substantially completed, and cash payments for this restructuring action are expected to be principally completed by 2020.
Restructuring charges for employee separation and termination benefits are paid either over the severance period or in a lump sum in accordance with either statutory requirements or individual agreements. Delphi Technologies incurred cash expenditures related to its restructuring programs of approximately $49 million and $67 million in the years ended December 31, 2019 and December 31, 2018, respectively.
The following table summarizes the restructuring charges recorded for the years ended December 31, 2019, 2018 and 2017 by operating segment and corporate:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
(in millions)
Fuel Injection Systems
$
32

 
$
29

 
$
79

Powertrain Products
17

 
6

 
8

Electrification & Electronics
25

 

 
5

Aftermarket
2

 
(2
)
 
6

Corporate
4

 
2

 

Total
$
80

 
$
35

 
$
98


The table below summarizes the activity in the restructuring liability for the years ended December 31, 2019 and 2018:
 
Employee Termination Benefits Liability
 
Other Exit Costs Liability
 
Total
 
(in millions)
Accrual balance at December 31, 2017
$
98

 
$
3

 
$
101

Provision for estimated expenses incurred during the year
32

 
3

 
35

Payments made during the year
(64
)
 
(3
)
 
(67
)
Foreign currency and other
(2
)
 
(2
)
 
(4
)
Accrual balance at December 31, 2018
$
64

 
$
1

 
$
65

Provision for estimated expenses incurred during the year
$
80

 
$

 
$
80

Payments made during the year
(49
)
 

 
(49
)
Foreign currency and other

 

 

Accrual balance at December 31, 2019
$
95

 
$
1

 
$
96


v3.19.3.a.u2
DEBT
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
DEBT DEBT
The following is a summary of debt outstanding, net of unamortized issuance costs and discounts, as of December 31, 2019 and December 31, 2018, respectively:
 
December 31,
 
2019
 
2018
 
(in millions)
Term Loan A Facility (net of $3 and $4 unamortized issuance costs)
$
691

 
$
727

Senior Notes at 5.00% (net of $10 and $12 unamortized issuance costs and $2 and $3 discount, respectively)
788

 
785

Finance leases and other
16

 
19

Total debt
1,495

 
1,531

Less: current portion
(40
)
 
(43
)
Long-term debt
$
1,455

 
$
1,488


The principal maturities of debt, at nominal value, are as follows:
 
Debt Obligations
 
(in millions)
2020
$
40

2021
78

2022
584

2023
1

2024
1

Thereafter
806

Total
$
1,510


Credit Agreement
On September 7, 2017, Delphi Technologies and its wholly-owned subsidiary Delphi Powertrain Corporation entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the "Administrative Agent"), with respect to $1.25 billion in senior secured credit facilities. The Credit Agreement consists of a senior secured five-year $750 million term loan facility (the “Term Loan A Facility”) and a $500 million five-year senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders party thereto and JPMorgan Chase Bank, N.A. We incurred $9 million of issuance costs in connection with the Credit Agreement. As of December 31, 2019, there were no amounts drawn on the Revolving Credit Facility.
The Credit Facilities are subject to an interest rate, at our option, of either (a) the Administrative Agent’s Alternate Base Rate (“ABR” as defined in the Credit Agreement) or (b) the London Interbank Offered Rate (the “Adjusted LIBOR Rate” as defined in the Credit Agreement) (“LIBOR”), in each case, plus an applicable margin that is based on our corporate credit ratings, as more particularly described below (the “Applicable Rate”). In addition, the Credit Agreement requires payment of additional interest on certain overdue obligations on terms and conditions customary for financings of this type. The interest rate period with respect to LIBOR interest rate options can be set at one-, two-, three-, or six-months as selected by us in accordance with the terms of the Credit Agreement (or other period as may be agreed by the applicable lenders), but payable no less than quarterly. We may elect to change the selected interest rate over the term of the Credit Facilities in accordance with the provisions of the Credit Agreement. The Applicable Rates charged to the Company on the specified date are set forth below:
 
December 31, 2019
 
December 31, 2018
 
LIBOR plus
 
ABR plus
 
LIBOR Plus
 
ABR plus
Revolving Credit Facility
1.45
%
 
0.45
%
 
1.45
%
 
0.45
%
Term Loan A Facility
1.75
%
 
0.75
%
 
1.75
%
 
0.75
%

The applicable interest rate margins for the Term Loan A Facility will increase or decrease from time to time between 1.50% and 2.00% per annum (for LIBOR loans) and between 0.50% and 1.00% per annum (for ABR loans), in each case based upon changes to our corporate credit ratings. The applicable interest rate margins for the Revolving Credit Facility will increase or decrease from time to time between 1.30% and 1.55% per annum (for LIBOR loans) and between 0.30% and 0.55% per annum
(for ABR loans), in each case based upon changes to our corporate credit ratings. Accordingly, the Applicable Rates for the Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the ABR, LIBOR or future changes in our corporate credit ratings. The Credit Agreement also requires that we pay certain facility fees on the aggregate commitments under the Revolving Credit Facility and certain letter of credit issuance and fronting fees. Amounts outstanding and the rate effective as of December 31, 2019, are detailed below:
 
Applicable Rate
 
Borrowings as of December 31, 2019 (in millions)
 
Rates effective as of December 31, 2019
Term Loan A Facility
LIBOR plus 1.75%
 
$
694

 
3.500
%

In December 2018, the Company entered into interest rate swap agreements, designated as cash flow hedges, with a combined notional amount of $400 million where the variable rates under the Term Loan A Facility have been exchanged for a fixed rate. These interest rate swap agreements mature in September 2022 and convert the nature of $400 million of the loan from LIBOR floating-rate debt to fixed-rate debt. In addition to these agreements, in December 2018 and March 2019, as a means of managing foreign currency risk related to our significant operations in Europe, the Company executed fixed-for-fixed cross currency swaps, in which the Company will pay Euros and receive U.S. dollars with a combined notional amount of $600 million. These agreements are designated as net investment hedges and have a maturity date of September 2022. See Note 19. Derivatives and Hedging Activities for additional information on our interest rate swaps.
Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this type, which issuances reduce availability under the Revolving Credit Facility. No such letters of credit were outstanding as of December 31, 2019.
We are obligated to make quarterly principal payments throughout the term of the Term Loan A Facility according to the amortization provisions in the Credit Agreement, as such payments may be reduced from time to time in accordance with the terms of the Credit Agreement as a result of the application of loan prepayments made by us, if any, prior to the scheduled date of payment thereof.
Borrowings under the Credit Agreement are prepayable at our option without premium or penalty. We may request that all or a portion of the Credit Facilities be converted to extend the scheduled maturity date(s) with respect to all or a portion of any principal amount of such Credit Facilities under certain conditions customary for financings of this type. The Credit Agreement also contains certain mandatory prepayment provisions in the event that we receive net cash proceeds from certain non-ordinary course asset sales, casualty events and debt offerings, in each case subject to terms and conditions customary for financings of this type.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to designate subsidiaries as unrestricted, to make certain investments, to prepay certain indebtedness and to pay dividends, or to make other distributions or redemptions/repurchases, with respect to our and our subsidiaries’ equity interests. In addition, the Credit Agreement requires that we maintain a consolidated net leverage ratio (the ratio Consolidated Total Indebtedness to Consolidated Adjusted EBITDA, each as defined in the Credit Agreement). The Credit Agreement also contains events of default customary for financings of this type, including certain customary change of control events. The Company was in compliance with the Credit Agreement covenants as of December 31, 2019. The Credit Agreement was amended on February 10, 2020. Pursuant to the amendment, for any fiscal quarter ending on or prior to September 30, 2019 or after December 31, 2020, the Company must maintain a consolidated net leverage ratio of not greater than 3.5 to 1.0 and for any fiscal quarter ending on or after December 31, 2019 and on or prior to December 31, 2020 a consolidated net leverage ratio of not greater than 4.0 to 1.0.
The borrowers under the Credit Agreement comprise Delphi Technologies and its wholly-owned Delaware-organized subsidiary, Delphi Powertrain Corporation. Additional subsidiaries of Delphi Technologies may be added as co-borrowers or guarantors under the Credit Agreement from time to time on the terms and conditions set forth in the Credit Agreement. The obligations of each borrower under the Credit Agreement will be jointly and severally guaranteed by each other borrower and by certain of our existing and future direct and indirect subsidiaries, subject to certain exceptions customary for financings of this type. All obligations of the borrowers and the guarantors are secured by certain assets of such borrowers and guarantors, including a perfected first-priority pledge of all of the capital stock in Delphi Powertrain Corporation.
In addition, the Credit Agreement contains provisions pursuant to which, based upon our achievement of certain corporate credit ratings, certain covenants and/or our obligation to provide collateral to secure the Credit Facilities, will be suspended.
Senior Notes
On September 28, 2017, Delphi Technologies PLC issued $800 million in aggregate principal amount of 5.00% senior unsecured notes due 2025 in a transaction exempt from registration under the Securities Act (the "Senior Notes"). The Senior Notes were priced at 99.5% of par, resulting in a yield to maturity of 5.077%. Approximately $14 million of issuance costs were incurred in connection with the Senior Notes offering. Interest is payable semi-annually on April 1 and October 1 of each year to holders of record at the close of business on March 15 or September 15 immediately preceding the interest payment date. The proceeds received from the Senior Notes offering were deposited into escrow and subsequently released to Delphi Technologies upon satisfaction of certain conditions, including completion of the Separation, in December 2017. From the date of the satisfaction of the escrow conditions, the notes are guaranteed, jointly and severally, on an unsecured basis, by each of our current and future domestic subsidiaries that guarantee our Credit Facilities, as described above. The proceeds from the Senior Notes, together with the proceeds from the borrowings under the Credit Agreement, were used to fund a dividend to the Former Parent, fund operating cash and pay taxes and related fees and expenses.
The Senior Notes indenture contains certain restrictive covenants, including with respect to Delphi Technologies’ (and subsidiaries) ability to incur liens, enter into sale and leaseback transactions and merge with or into other entities. The Company was in compliance with the Senior Notes covenants as of December 31, 2019.
Other Financing
Receivable factoring—During the three months ended December 31, 2019, the Company entered into a €225 million accounts receivable factoring facility for certain subsidiaries in Europe, of which €214 million is available on a committed basis. The facility is accounted for as short-term debt and borrowings are subject to the availability of eligible accounts receivable. Collateral is not required related to these trade accounts receivable. This program matures on November 28, 2022 and will automatically renew on a non-committed, indefinite basis unless terminated by either party. Borrowings bear interest at LIBOR plus a margin for borrowings denominated in British pounds and Euro Interbank Offered Rate ("EURIBOR") plus a margin for borrowings denominated in Euros. The applicable margin will increase or decrease from time to time between 0.45% and 0.85% based on changes to our corporate credit ratings. No amounts were outstanding on the European accounts receivable factoring facility as of December 31, 2019 or December 31, 2018.
The Company has entered into arrangements with various financial institutions to sell eligible trade receivables from certain Aftermarket customers in North America and Europe. These arrangements can be terminated at any time subject to prior written notice. The receivables under these arrangements are sold without recourse to the Company and are therefore accounted for as true sales. During the years ended December 31, 2019 and 2018, $150 million and $112 million of receivables were sold under these arrangements, and expenses of $4 million and $5 million, respectively, were recognized within interest expense.
In addition, during the year ended December 31, 2019 and 2018, one of the Company’s European subsidiaries factored, without recourse, approximately $41 million and $25 million of receivables related to certain foreign research credits to a financial institution, respectively. These transactions were accounted for as true sales of the receivables, and as a result the Company derecognized these amounts from other long-term assets in the consolidated balance sheets as of December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, less than $1 million of expenses were recognized within interest expense related to this transaction.
Finance leases—There were approximately $14 million and $14 million finance lease obligations outstanding as of December 31, 2019 and 2018, respectively.
Interest—Cash paid for interest related to debt outstanding, including the effect of interest rate and cross currency swaps, totaled $66 million, $75 million and $2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
v3.19.3.a.u2
PENSION BENEFITS
12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
PENSION BENEFITS PENSION BENEFITS
The Company sponsors defined benefit pension plans for certain employees and retirees outside of the U.S. Using appropriate actuarial methods and assumptions, the Company’s defined benefit pension plans are accounted for in accordance with FASB ASC Topic 715, Compensation—Retirement Benefits. The Company’s primary non-U.S. plans are located in the U.K., France and Mexico. The U.K. and certain Mexican plans are funded. In addition, the Company has defined benefit plans in South Korea, Turkey and Italy for which amounts are payable to employees immediately upon separation. The obligations for these plans are recorded over the requisite service period. Delphi Technologies does not have any U.S. pension assets or liabilities.
Effective March 31, 2019, the Company has frozen future accruals for nearly all U.K. based employees under the related defined benefit plans, replacing them with contributions under defined contribution plans effective April 1, 2019, including additional contributions and other payments to impacted employees over a two-year transition period. As a result of this change, the Company realized a one-time reduction to its pension obligation of $33 million, along with a one-time charge of $15 million in the year ended December 31, 2019, related to curtailing the defined benefit pension plans in the U.K. The Company also recognized a charge of $13 million in the year ended December 31, 2019 related to transitional payments to impacted employees. The Company excluded these charges, and expects to exclude related future charges, from our calculation of Adjusted Operating Income.
Funded Status
The amounts shown below reflect the change in the non-U.S. defined benefit pension obligations during 2019 and 2018.
 
Year Ended December 31,
 
2019
 
2018
 
(in millions)
Benefit obligation at beginning of year
$
1,442

 
$
1,604

Service cost
12

 
37

Interest cost
34

 
36

Actuarial (gain) loss
138

 
(112
)
Benefits paid
(54
)
 
(47
)
Impact of curtailments
(60
)
 

Plan amendments and other


 
20

Exchange rate movements and other
43

 
(96
)
Benefit obligation at end of year
1,555

 
1,442

Change in plan assets:
 
 
 
Fair value of plan assets at beginning of year
976

 
1,074

Actual return (loss) on plan assets
144

 
(36
)
Contributions
51

 
47

Benefits paid
(54
)
 
(47
)
Exchange rate movements and other
35

 
(62
)
Fair value of plan assets at end of year
1,152

 
976

Underfunded status
(403
)
 
(466
)
Amounts recognized in the consolidated balance sheets consist of:
 
 
 
Non-current assets

 
1

Current liabilities

 
(1
)
Non-current liabilities
(403
)
 
(466
)
Total
(403
)
 
(466
)
Amounts recognized in accumulated other comprehensive income consist of (pre-tax):
 
 
 
Actuarial loss
274

 
285

Prior service cost
6

 
21

Total
$
280

 
$
306


The projected benefit obligation (“PBO”), accumulated benefit obligation (“ABO”), and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets and with plan assets in excess of accumulated benefit obligations are as follows:
 
December 31,
 
2019
 
2018
 
(in millions)
Plans with ABO in Excess of Plan Assets
PBO
$
1,529

 
$
1,420

ABO
1,520

 
1,290

Fair value of plan assets at end of year
1,130

 
954

 
Plans with Plan Assets in Excess of ABO
PBO
$
26

 
$
22

ABO
21

 
18

Fair value of plan assets at end of year
22

 
22

 
Total
PBO
$
1,555

 
$
1,442

ABO
1,541

 
1,308

Fair value of plan assets at end of year
1,152

 
976


Benefit costs presented below were determined based on actuarial methods and included the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
(in millions)
Service cost
$
12

 
$
37

 
$
34

Interest cost
34

 
36

 
34

Expected return on plan assets
(56
)
 
(54
)
 
(47
)
Curtailment loss
15

 

 

Amortization of actuarial losses
7

 
24

 
26

Net periodic benefit cost
$
12

 
$
43

 
$
47


During the first quarter of 2017, the Company elected to early adopt ASU 2017-07. As a result, service costs are classified as employee compensation costs within cost of sales and selling, general and administrative expense within the consolidated statement of operations. All other components of net periodic benefit cost are classified within other expense for all periods presented.
The Company had $1 million and $1 million in other postretirement benefit obligations as of December 31, 2019 and 2018, respectively.
Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions are recognized in other comprehensive income. Cumulative gains and losses in excess of 10% of the PBO for a particular plan are amortized over the average future service period or average future lifetime of the employees in that plan, as applicable. The estimated actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2020 is $8 million.
The principal assumptions used to determine the pension expense and the actuarial value of the projected benefit obligation for the non-U.S. pension plans were:
Assumptions used to determine benefit obligations at December 31:
 
Pension Benefits
 
2019
 
2018
Weighted-average discount rate
1.96
%
 
2.75
%
Weighted-average rate of increase in compensation levels (1)
3.32
%
 
3.96
%
(1)
This assumption is not applicable to plans that have been frozen to future accruals.
Assumptions used to determine net expense for years ended December 31:
 
Pension Benefits
 
2019
 
2018
 
2017
Weighted-average discount rate
2.75
%
 
2.46
%
 
2.58
%
Weighted-average rate of increase in compensation levels (1)
3.96
%
 
3.98
%
 
3.97
%
Weighted-average expected long-term rate of return on plan assets
5.40
%
 
5.50
%
 
5.50
%

(1)
This assumption is not applicable to plans that have been frozen to future accruals.
Delphi Technologies selects discount rates by analyzing the results of matching each plan’s projected benefit obligations with a portfolio of high-quality fixed income investments rated AA-or higher by Standard and Poor’s.
The primary funded plans are in the U.K. and Mexico. For the determination of 2019 expense, Delphi Technologies assumed a long-term expected asset rate of return of approximately 5.39% and 8.00% for the U.K. and Mexico, respectively. Delphi Technologies evaluated input from local actuaries and asset managers, including consideration of recent fund performance and historical returns, in developing the long-term rate of return assumptions. The assumptions for the U.K. and Mexico are primarily long-term, prospective rates. To determine the expected return on plan assets, the market-related value of approximately 25% of our plan assets is actual fair value. The expected return on the remainder of our plan assets is determined by applying the expected long-term rate of return on assets to a calculated market-related value of these plan assets, which recognizes changes in the fair value of the plan assets in a systematic manner over five years.
Delphi Technologies’ pension expense for 2020 is determined at the 2019 year end measurement date. For purposes of analysis, the following table highlights the sensitivity of the Company’s pension obligations and expense to changes in key assumptions:
Change in Assumption
 
Impact on
Pension Expense
 
Impact on PBO
25 basis point (“bp”) decrease in discount rate
 
 + $0 million
 
+ $76 million
25 bp increase in discount rate
 
- $0 million
 
- $70 million
25 bp decrease in long-term expected return on assets
 
+ $3 million
 
25 bp increase in long-term expected return on assets
 
- $3 million
 

The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. The above sensitivities also assume no changes to the design of the pension plans and no major restructuring programs.
Pension Funding
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
 
Projected Pension Benefit Payments